Profits vs. Partners

“The super-prize of partnership isn’t so super anymore,” said Marc Galanter, a law professor at the University of Wisconsin and coauthor of Tournament of Lawyers: The Transformation of the Big Law Firm. “You never get to a point of repose. There’s always this competition going on.”

A former associate at a large firm, now at a media company, put it bluntly: “I would look at the partners and they were all overweight, on their second or third wives, heart attacks waiting to happen. I would think, ‘Is this what I get in the end?’”

IF ASSCOIATES ARE NO LONGER as interested in partnership, this naturally poses a problem for law firms. Firms make their money by providing professional services. Attracting and retaining the very best professionals, from senior partners on down to first-year associates, is critical to their success.

“Every law firm is a seller in the market for legal services and a buyer in the market for legal talent,” said Mr. Bower. “Ultimately, all they have to sell is what they’re able to buy.”

These days hiring and retaining lawyers is the greatest challenge for firms, according to several law firm partners and industry consultants.

“Our biggest problems are supply side,” said one partner at a national firm. “We need to attract and retain people who can do great work.”

American law schools churn out roughly 40,000 graduates a year, a number that hasn’t budged much in the past 10 years. Strong demand for new associates, combined with static supply, is driving up the price of talent.

Associate starting salaries have been climbing fast. In January, Simpson Thacher led the latest round of pay raises, which took starting salaries from $145,000 to $160,000. That came less than a year after the previous raise, led by Sullivan & Cromwell’s move from $125,000 to $145,000. In both cases, everyone quickly followed the leader.

But given firms’ seemingly insatiable demand for new recruits, expect more raises in the not-too-distant future. Peter Zeughauser believes the next raise will be to $200,000 and could take place “as early as within the next six months. On the outside, 12 to 18 months. And a move to $250,000 after that.”

The need for firms to ante up more money stems in part from the less stable nature of partnership. “As the odds of getting the prize [of partnership] go down, and the prize itself is somewhat compromised by the fact that partnership now comes without the real guarantee of tenure, the present value of the prize goes down,” said Professor Galanter. “Then people say, ‘O.K., if I’m not getting this big prize, I want more cash now.’ And that’s exactly what we’re seeing.”

Recent law school graduates, many of whom carry debt into the six figures, generally rejoice at higher salaries. But this may be a case of “be careful what you wish for.” According to Arnold & Porter partner James Sandman, former president of the bar in Washington, D.C., (where top firms recently raised associate salaries to match those of New York): “There is no free lunch. Higher salaries inevitably mean higher billable-hour expectations and even less work–life balance.”

Thus it remains to be seen if the pay raises will address “associate attrition”—young lawyers departing prematurely, after firms have invested in their training and development, but before the years in which they’d be most profitable for the firms.

According to Irene Dorzback, assistant dean in the Office of Career Services at New York University School of Law, firms “believe that the way to retain [associates] is to increase the salaries. But the thing that associates are looking for more than anything else is work-life balance.”

In fact, increasing salaries may actually lead associates to leave firms sooner rather than later. Said Ms. Dorzback: “Students come into the office after each pay raise and ask, ‘Can you help me reassess my debt? How long do I have to stay [at a firm] now?’”

“They’re throwing more and more money at 26-year-old graduates, and people are still leaving law firms in droves,” said Melissa Lafsky, an ex-associate and author of the Opinionistas blog, in which she chronicled the more depressing realities of law firm life. “People still leave, and they still hate it.”